What Greece's creditors should know

Syriza cannot and will not default on its people by stopping paying wages and
pensions. If matters come to a head, it will default on its creditors because democratic principles are not negotiable.

Alexis Tsipras and President of the European Parliament, Martin Schulz. Flickr/European Parliament. Some rights reserved.In his recent article in Le Monde (31
May 2015), Greece's PM, Alexis Tsipras, said that if Greece were to implement
the (failed) austerity policy of technocrats and bankers, then there would be
no need to have elections in Greece, and indeed in any country following austerity
programmes. He outlines two competing strategies that tend to shape current
European politics: one that promotes unification and solidarity across the
continent, and another that fights for division and separation.

Here, we take
his thoughts a step further by suggesting what Greece's creditors should know
in case the technocrats prevail in the current negotiations. Syriza's Greece cannot
and will not default on its people by stopping paying wages and pensions. If
matters come to a head, it will default on its creditors because this is a
matter of democracy and democratic principles are not negotiable

Greece managed to make a recent payment of 750 million Euros to the IMF
by way of drawing down a special account Greece held at the fund. But early in
June, a further payment of 300 million Euros to the IMF is required, although
the fund said that this can be met at the end of the month, allowing
negotiators to strike a deal. It is almost impossible for Greece to meet
further obligations to her creditors, given the fact that the most recent
payments became possible after Greece's central government forced local
authorities and public organisations to commit their reserves to servicing the
country's debt.

Redemptions of 6.7 billion Euros, which are held by the ECB and
which have to be met in July and August are impossible to be paid. Since last
October, the decline in bank deposits has been steady and the banking system
kept operating thanks to emergency liquidity assistance (ELA) provided by the
ECB via Greece's central bank.

This is approved on a weekly basis by the ECB’s
governing council on the basis of a two-third majority and it can be cut-off at
any point. Total bank deposits in Greece fell from 145 billion Euros in March
to 139.4 billion Euros in April. Business and households deposits shrank by
3.5% to 133.6 billion Euros. Growth shrank by 0.5% in the last quarter of 2014
and a further 0.2% in the first quarter of 2015.

The European Commission had
forecast growth of 2.9% in November. Just before the "troika" (ECB,
IMF and the EU, now euphemistically called "institutions") imposed
the first bail-out deal in 2010-11, the debt/GDP ratio stood at 118%. Today, after
five years of untold austerity measures it stands at 174%. The same goes for
official unemployment. In 2010 unemployment stood at 9%. Today it is as high as
26%, with youth unemployment at 57%. This all speaks volumes of the failure of
Brussels and Berlin to bridge the gap between centre and periphery in Europe
via austerity programmes and fiscal discipline, which are recipes that the
previous centre-right cabinets slavishly implemented in Greece from 2010
onwards.

Policy-making teams and analysts are good in maths and econometrics and
know how to deal with financial complexities, every-day risk management and the
bureaucratic detail.

Power lies in Berlin and this makes Germany's technocrats in
Brussels very powerful. Greece, the technocrats argue, has borrowed large amounts
of money and it is now time to pay (although they forget to add that the
lenders knew that Greece would not be in a position to pay back at the moment
when they kept lending money to her for decades - but that is another story). Thus,
in terms of policy, the technocrats/lenders can force "solutions" on
weak periphery actors. Moreover, technocrats are great in designing policy models
and making (unashamedly wrong) predictions.

But those technocrats and policy-makers are not independent agents. They
are influenced by power-politics and the interests of the strongest power in
the EU - Germany. They are indeed entrapped in a German-led anti-inflation,
export-led monetarist bias, according to which the European economy is, or
should be, a system of interlocking markets in a timeless equilibrium alongside
fiscal discipline and fixed exchange rates regimes. And in the unlikely event
that a crisis creeps in, then more fiscal discipline and austerity is asked to
rectify imbalances. Fiscal disobedience is punishable and any injection of
demand-led Keynesian economics is not permissible.

As a response to the
financial crisis and the Euro-zone crisis, Berlin, via Brussels, has now
adopted the so-called "European Semester" policy in which the national
budgets of the Euro-zone are closely monitored before they are authorised by
the Commission to go for approval by the respective parliaments. This policy
has effectively been imposed on candidate states as well, such as the non-EU
Western Balkan states, most of which have their currencies pegged to the Euro.
Formal national sovereignty in the EU and beyond is a thing of the past.

These are very worrying signals. As a plethora of writers has shown, including
Martin Wolf of the Financial Times, the
Euro-zone crisis is not a fiscal crisis. As such it does not, primarily,
require budgetary discipline and the European Semester policy is bound to fail,
creating more poverty and hardship across the continent and not just in the
periphery. The Euro-zone crisis is first and foremost a balance of payments
crisis structured alongside the current account of EU member-states, and
especially those states which are members of the Euro-zone.

This is the result
of the unevenness across the Euro-zone in terms of the degree of industrial development,
innovation and financial power that each European country can amass. Basically,
it tells us that Germany and Greece cannot have the same currency, unless the
former functions as an empire and the latter as a colony. It also tells us that
another fixed exchange rates regime is destined to fail, the same way as all
previous systems failed in modern history, beginning with the Gold Standard of
the nineteenth century to the collapse of Bretton Woods in 1971 and beyond.

Things
in Europe might have been different if Berlin was Washington DC and the EU was
United States of Europe. It could have then been possible to somewhat balance
out market and developmental disequilibria via a unified European fiscal
system, recycling social surpluses from the centre to the periphery without the
mediation of the banking system and usurious interest rates requiring unusual
austerity policies.

Still, however, the problem of the periphery could remain
unresolved, the same way as the problem of the Italian south is unresolved
after more 160 years of Italian unification. Uneven development is a structural
feature of capitalism that cannot be cured with fiscal transfers from the core
to the periphery. Uneven development can be transcended only by a new social
system in which extraction of profit and state power do not constitute the raison d' être of that system but an
expiring, secondary and socially intolerant function of it.

This is what
democratic socialism is all about. Europe - the birthplace of socialism as Eric
Hobsbawm and Donald Sassoon have so eloquently argued - is
not yet ready for that. With the monetarist forces in charge across the
continent, it seems that the most feasible perspective is not the unification
of the peoples of Europe in view of attaining democratic socialism, but the
separation of peoples of Europe in order to unite them in a new European,
socialist perspective.

This is neither a dream nor a nationalist platform. In
fact, this is perhaps the only way today to defeat the rising xenophobia and
right-wing authoritarianism in Europe, which is the direct result of rampant
monetarism and free market fundamentalism, failing to generate wage growth and
social prosperity.

The tendency of "separating the Europeans in order to unite
them" is real and emanates from the current Euro-zone crisis. The process
of European integration created insuperable financial disequilibria, boosting structurally
such disintegrative tendencies that are impossible to be cured politically at
the European level, especially if the prevailing forces in Europe are
pro-monetarist.

The experiment of Syriza in negotiating its moderate Keynesian
programme with Greece's creditors in order to achieve better bail-out terms
speaks volumes about the structural rigidity of the monetary union, which makes
it impossible to be reformed from within. What, then, should Greece's creditors
know?

----

On 25 January 2015, Syriza came to power with a clear mandate and on the
basis of a moderate left platform that many Keynesians, let alone Marxists, had
fiercely criticised. There is nothing radical or extreme in Syriza's
pre-election programme announced in Salonica in September 2014. Even calls to
"disengage from NATO" were dropped. Andreas Papandreou's PASOK in the
1980s, not to speak of its super-radical period in the 1970s, were far more
dangerous for capitalism than Syriza are today.

What is the problem and why
can Euro-zone officials not accept Syriza's moderate reform proposals,
especially with regards to pension, wages and elementary protection of labour
markets?

The problem, as insinuated earlier, is the rigidity of the European
Monetary System which is governed by a set of monetarist rules, such as the
anti-inflation bias and the budgetary discipline that should prevail across the
Euro-zone. Any form of wage growth is prohibited and social programmes should
be dismantled.

Therefore, it is clear, as the article of the Greek PM has
perceptively shown that the clash between Greece and Europe is a matter of democracy.
The Greek government entered negotiations on the basis of a clear popular
mandate (currently its negotiating efforts are supported by 70% of the Greek
people), whereas European officials and negotiators are the mouthpieces of
unelected bankers and technocrats bound by set monetarist principles.

They
know that if they succumb to the democratic will of the Greek people, then a
new road opens for European politics and economics, that of social solidarity,
social programmes and wage growth.

But it is unlikely that they will succumb.
In this case, they should know that Syriza's Greece cannot default on its
people by stopping the payment of wages and pensions; it will not default on them because
this is a matter of democracy and the democratic principle is not negotiable.

It
should also be noted that such a perspective will inflict far more serious
damages to European and global capitalism than one is eager, or possible, to
discern and recognise today. Hic Rhodus,
hic salta!

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About the author

Vassilis K. Fouskas is Professor of International Politics & Economics at
the Royal Docks School of Business & Law, University of East London and
Director of STAMP (Centre for the study of States, Markets & People).

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